Ford bet on aluminum trucks, but is still looking for payoff

Three years ago, Ford Motor made a daring gamble when it started selling a new version of its F-150 pickup truck made mainly of aluminum rather than steel.

No carmaker had ever committed to using aluminum so widely in such a high-volume, high-profile vehicle. But the new F-150 proved to be a technological marvel — 700 pounds lighter than the truck's previous version, able to pull heavy loads with a V6 engine rather than a gas-guzzling V8.

Ford expected aluminum to give its truck a critical advantage in an era of tougher fuel-economy standards and rising gasoline prices. The company also thought the truck would pull customers away from General Motors and Fiat Chrysler Automobiles, and command prices high enough to increase Ford's profit, despite aluminum's higher cost.

But the revolutionary switch seems to be giving Ford less of an edge than it had hoped.

With moderate gasoline prices, fuel economy is no longer a persuasive factor for many truck buyers. While sales are brisk, F-Series trucks — including the F-150 and the brawnier Super Duty — have only slightly increased their share of the full-size pickup truck segment since the aluminum models arrived. Their share is actually lower than it was in 2013.

Moreover, the lightweight metal has become one of several factors weighing down Ford's profitability. In 2017, the company's income in North America fell 17 percent, in part because of rising steel and aluminum prices.

Aluminum prices have risen more than 20 percent in the last three years — and seem likely to increase further after the Trump administration's vowed to impose tariffs of 10 percent on aluminum and 25 percent on steel. The announcement on Thursday sent Ford's shares down 3 percent, and the stocks of the other Detroit automakers also fell sharply.

Ford "thought gas prices were going to go to $6 or $8 gallon, and therefore having a couple miles per gallon more would be a big market-share mover that consumers would pay for," said Brian Johnson, a financial analyst at Barclays Capital. "It's one of those managerial decisions that, if you had a crystal ball on the future, you might make differently."

Joe Hinrichs, Ford's president of global operations, acknowledged that the increasing cost of aluminum had become a problem.

"It is not the biggest issue, but it is an issue," he said recently while giving reporters a tour of a Louisville plant that has started making two aluminum-bodied sport-utility vehicles. The plant also makes Super Duty trucks.

Ford has no second thoughts about making the aluminum truck, Mr. Hinrichs added, noting that its light weight provides a smooth ride and increases towing and hauling capacity.

"Aluminum also allowed us to have a lot more capability in a truck, and that's what people buy for," he said.

The F-Series remains the nation's top-selling vehicle line, accounting for a third of the cars and trucks Ford produces in North America and its biggest source of profits. Last year, Ford built more than one million F-Series trucks, and United States sales topped 896,000 — both the highest totals since 2005. The trucks commanded higher prices, too: They sold for an average of $49,552 in 2017, up more than $6,000 since 2014, according to Edmunds.com.

The company does not disclose the profitability of individual models, but analysts widely believe the margin on a full-size truck can be $10,000 or more. The margin on cars is often only a few hundred dollars, or less.

Ford's chief financial officer, Robert L. Shanks, said the profit on F-Series trucks remained robust and rose in 2017. The trucks were "not a contributor to the decline in profitability at all," he said. Rather, income was squeezed by development of electric vehicles and other new models, unfavorable foreign exchange rates and other rising costs, he said.

But a deeper look at the truck reveals some concerns. While the F-Series remains the clear leader in full-size pickups, it isn't leaving competitors in the dust. Last year, the F-Series accounted for 37.4 percent of all full-size truck sales, according to Edmunds.com. That was a percentage point more than in 2014, but two points less than in 2013.

If aluminum prices keep rising and F-Series profitability suffers, the challenges could increase pressure on Ford's chief executive, Jim Hackett. Mr. Hackett, who took over in May, has vowed to cut costs to improve the automaker's "fitness."

Even with higher F-Series production and prices, Ford suffered a clunker of a year in 2017. In North America, pretax profit slumped to $7.5 billion, from $9 billion in 2016. Its profit margin in the region fell to 8 percent from 9.7 percent the year before. The results look worse when compared with G.M.'s North American operations, which earned $11.9 billion and had a margin of 10.7 percent.

"The contrast with G.M. is pretty stark," said Rod Lache, a financial analyst at Deutsche Bank.

Even if metal prices remain steady, Ford is in for a tough fight in trucks. New-vehicle sales in the United States are expected to decline this year and next. There are new offerings from competitors, as well: G.M.'s Chevrolet and GMC brands and Fiat Chrysler's Ram line are introducing redesigned pickups this year, with new features. On Thursday, G.M. unveiled a GMC Sierra available with a bed of carbon-fiber composite, another lightweight material.

"Ford will have the oldest truck on the market, so it's not going to get easier from here," Mr. Lache said.

The aluminum F-150 was in the planning stages when gasoline spiked to $4 a gallon and the Obama administration moved toward tougher fuel-economy standards. But by the time the first aluminum F-150s were produced in late 2014, gas prices were closer to $2 and fuel economy was less of a concern for consumers. G.M. and Fiat Chrysler improved the fuel economy of their pickups, partly by using more aluminum parts, but not to the extent that Ford did.

Ford adjusted its marketing to highlight attributes other than fuel economy, and struck a chord with many customers. "The F-Series is doing awesome," said Charlie Gilchrist, who has owned two Ford dealerships near Dallas for years and purchased a third this month. "I think aluminum is an advantage for us. You can haul more. It's durable."

But Jeff Schuster, an analyst at LMC Automotive, a market research firm, suspects that the switch to aluminum has proved more expensive in ways beyond the cost of the metal. Aluminum sheets are tricky to stamp — they spring back more than steel. They are not magnetic, so standard machines that use magnets to lift metal parts had be to scrapped in favor of new systems that use suction. Ford had to develop technologies to fasten aluminum to steel — the metals cannot be welded together the way sheets of steel can.

"I think the cost of engineering and development was more than it would have been otherwise if they hadn't used aluminum," Mr. Schuster said. "All the testing, the tooling — it's probably those costs, not just the actual commodity costs."

The move to aluminum "hasn't been a disaster," he said. "But maybe not a home run, either."